Credit conundrum


Since I will be away at college this Fall, I asked my parents for a credit card. Can you help persuade them to get me a card?

You omitted one point in your question. Did you want a credit card from your parents, so they pay the bill, or one in your own name? I surmise the latter, so their reluctance is for your protection, rather than their own. Credit cards allow you to spend money you do not have at a high interest rate. Why would anyone your age need that? However, you cannot function in today’s environment without a card, so much so that in some countries they are practically doing away with cash. We will look at the current state of the card economy and learn if students have fallen into debt.

The combination of student plus credit card is the stuff of nightmares for many parents. Our consumer-driven society and materialistic media pile on the pressure to keep spending. For many students, their first foray off to college comes with new found financial freedom and for many more, their first encounter with credit and debt.

To ascertain whether this is a good or bad thing, we need to look at some statistics. In recent years, a balance of over $4K was carried by 2% of student card holders. The average balance for all U.S. card holders carrying this type of debt was over $16K.

The good news is that average student credit card balance has declined in the first few years of the decade, driven by an increase in scholarships and grants. Additionally, the number of students paying off all credit card debt has almost tripled. Credit card use amongst students has declined each year since 2010 in the wake of the passage of the CARD Act, hailed by both consumer and business lawyers for its establishment of fair and transparent processes for credit extensions.

According to an Experian College Graduate Survey this year, almost 60% of undergraduates said they had a credit card and 30% claimed to be in debt with an average balance of over $2.5K

Many argue that having a credit card allows students to manage their finances and debt load, learn to pay bills on time, and build up a credit rating. This will be essential later in life, so knowing about your FICO score is a good lesson to learn early on. The counter argument from bankruptcy lawyers is that giving a credit card to a student with no personal finance knowledge is a recipe for disaster.

If your parents let you have a card, they should also have the opportunity to teach you how to use it. Once you graduate you are on your own, so it makes sense to have as much control over your finances as possible and learn how to manage your debts.

In what is rapidly becoming a cashless society, a credit card also provides convenience and assists in online purchasing. It can be used for books and study materials and comes with consumer protections and zero liability in case of fraud. A credit card brings a lot of responsibility so let your parent’s guide you on its usage.

Money is just the poor man’s credit card…

Marshall McLuhan.

Written by Jacob Maslow, founder and editor of Legal Scoops.


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